UK tax havens lure crypto investors

• The British tax haven islands of Jersey and Guernsey are stepping up efforts to attract crypto and blockchain investors.
• They compete with territories such as Bermuda and the Cayman Islands by offering favorable tax rules.
• Crypto prices have fallen this year and investors are more discerning about where they put their money.

As the financial world seems to have fallen in love with bitcoin, the Channel Islands – a series of small British overseas territories – are quietly offering crypto investors incentives to move their money away from more traditional tax havens.

Jersey and Guernsey – located off the French coast – are attracting crypto, blockchain and other fintech firms thanks to their favorable tax laws.

Neither island has capital gains or inheritance tax, making them attractive locations for investment companies.

And even before crypto entered the mainstream, both islands had begun to compete for the booming asset class. Edmund Hatton, a fintech manager at Digital Jersey, told Insider that he first noticed customers discussing bitcoin and crypto back in 2011.

Jersey has attracted firms including CoinShares, which manages about $3 billion worth of assets. The Swiss-based group used Jersey to establish its crypto-backed Physical Bitcoin exchange-traded product in January 2021.

Meanwhile, Guernsey Finance’s CEO took a recent trip to Miami, which has established itself as one of America’s best-known crypto hubs.

It is part of an effort to lure Western crypto investors to the island and away from rival tax havens such as the Cayman Islands, according to Barney Lewis, a Guernsey-based fund manager at investment firm ZEDRA.

“We compete directly against Cayman, and we see the migration of American funds from there,” he told Insider. “Brazilian and South American investors have fallen in love with Cayman, and are moving capital to Guernsey.”

The Channel Islands’ push to lure crypto investors has coincided with a widespread retreat from digital assets over the past nine or 10 months.

Bitcoin has plunged 49.7% to just under $24,000 so far in 2022, while fellow large-cap token ethereum has fallen 49.8% to below $1,900 – well off their respective record highs of $69,000 and $4,867 for less than a year ago.

Stocks have also fallen in 2022, meaning traditional investors are beginning to doubt crypto’s effectiveness as a potential portfolio diversifier, especially as consumer inflation has plummeted to multi-year highs around the world.

“Six months ago, you saw portfolios of traditional stocks, bonds and then maybe 2.5 to 5% crypto as an inflation hedge,” Lewis said. “But it looks like a terrible inflation hedge now.”

Long-time digital asset bulls tend to shrug off these sell-offs, arguing that a “crypto winter” could benefit the space by stress-testing key infrastructure, consolidating large firms and encouraging greater efficiency.

That maturing of the space could increase investors’ appetite for low-tax jurisdictions such as Jersey and Guernsey, experts said.

“In a crypto winter, we could see consolidation of crypto projects,” Jonathan Van Neste, a partner at Jersey-based Oben Regulatory, told Insider. “It would lead to a much more diversified investment opportunity in the crypto, blockchain and DLT space.”

And there is some optimism in the Channel Islands that a proactive approach to attracting investors will now put Jersey and Guernsey in an ideal position to capitalize on a cryptocurrency comeback.

“I don’t feel like we’ve missed the boat at all,” Lewis told ZEDRA Insider. “Yes, the adoption of crypto and digital assets has been slow in the funds space, but we have to hope that we are well placed for the next cycle.”

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